Interview With : Harshvardhan Dole, Analyst, Power, Institutional Equities, IIFL ON Tata Power Renewable Energy
Updated on: 13 Jun 2016
Tata Power has signed a share purchase agreement to buy Welspun Renewable Energy's 1.14 GW renewable assets (1000 MW is operational).
The deal that is said to be the largest solar deal in India, will push up Tata Power's renewable capacity to 2.3 GW.
Harshwardhan Dole of IIFL said in an interview to CNBC-TV18 that the acquisition is in line with the company's strategy and will catapult Tata Power as a top renewable energy player in India.
"The acquisition is a reasonable one, only if Tata Power manages to mitigate its risks... however, the deal is slightly expensive for the power giant," he added.
The power purchase agreement (PPA) structure of the project and how Tata Power finances it will decide how fruitful the acquisition be for Tata Power, Dole said.
Below is the verbatim transcript of Harshvardhan Dole's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Latha: Welspun Renewable Energy is a big purchase on the part of Tata Power and a fairly significant diversification into renewable energy. How do you approach the stock now?
A: The details which have been shared to the exchanges are sketchy. We need to get into the details of the power purchase agreements (PPAs) and how remunerative are these PPAs. I presume that these will at least earn the benchmark rate of return that Central Electricity Regulatory Commission (CERC) has prescribed, which is at least 15.5 percent. If that is the base case then one would have to get into the merits and the details of how Tata Power would go ahead and finance this.
However, Tata Power themselves -- if you look at the total balance sheet strength, a lot of capital is ploughed into the assets which are not currently yielding them positive cash flows and we all know what the problematic areas are. So prima facie it is an acquisition which will catapult Tata Power into top two-top three renewable energy players in India and if they are able to mitigate the risk etc, it appears to be a reasonable acquisition.
Sonia: We do not know the financial details of the acquisition are just yet but if we go by what the news report suggests and the deal is valued at around Rs 10,000 crore. How does the valuation look and what do you expect the stock to do here on because the stock has had a good run since the month of February?